FOREX-Euro resilient ahead of inflation test, M&A supports sterling
* Euro broadly higher after solid performance overnight
* ECB officials play down QE expectations
* Sterling consolidates after hitting 4-1/2 year high
* Asian session seen subdued with Japan shut for holiday
By Ian Chua
SYDNEY, April 29 (Reuters) - The euro traded at multi-week highs against the yen early on Tuesday and held firm against the dollar following a surprisingly strong performance overnight as expectations for additional stimulus from the European Central Bank waned.
The common currency reached a three-week peak of 142.18 yen , before slipping a touch to 141.97 yen. Against the Australian dollar, it hovered near a five-week high of A$1.4985 .
But further big gains are unlikely in Asia with a public holiday in Japan set to dampen trade.
A source said ECB President Mario Draghi had told German lawmakers the central bank was still a long way off from implementing a bond-buying programme even in the face of persistently low inflation.
Sounding a similar tune, ECB Vice President Vitor Constancio told reporters in Frankfurt that April's inflation figures due later this week should not alone trigger a policy change.
Still, traders said any downside surprise in the inflation numbers will weigh on the euro, especially since the market is positioning for a pick up in price pressure.
German inflation figures are due later on Tuesday, ahead of the euro zone number on Wednesday.
"If the German price data fails to show any improvement, this would immediately raise expectations for an ECB easing as soon as May 8, and hurt the euro," analysts at BNP Paribas wrote in a note to clients.
The euro was only a tad firmer on the dollar at $1.3852 after recoiling from a two-week high of $1.3880. That helped the dollar index recover to 79.696 from a two-week low of 79.548.
Traders said ongoing tensions in Ukraine were creating some volatility in the currency market.
The United States on Monday slapped fresh sanctions on Russian firms and government officials, while its European allies are wrangling over how to follow suit without badly hurting their own economies.
Sterling was also caught up in a choppy session. It reached a fresh 4-1/2 year high of $1.6858 on the prospect of M&A flows but relinquished most of the gains to last stand at $1.6810.
U.S. drugmaker Pfizer confirmed on Monday it wanted to buy AstraZeneca in a deal that could value its smaller British rival at more than $100 billion.
The dollar managed to gain a bit of ground on the yen as U.S. Treasury yields edged up on the back of upbeat U.S. housing numbers. It fetched 102.51 yen, up from 102.21 late on Friday.
Traders said investors were generally wary of taking aggressive positions ahead of major events later this week.
Policy reviews by the Federal Reserve and Bank of Japan as well as U.S. non-farm payrolls are likely to play a pivotal role in shaping the market's short term outlook. (Editing by Shri Navaratnam)